Emirates NBD calls on central bank to ease restrictions on mortgage lending

Emirates NBD, Dubai's largest bank by assets, wants the UAE Central Bank to ease restrictions on mortgage loans by separating housing finance from the bracket of funding extended to the real estate and construction sectors, a move the bank hopes will boost mortgage lending in the country. 

Exposure to construction and real estate sectors for UAE lenders is currently limited by the central bank to a maximum of 20 per cent of total deposits and interbank borrowing of an individual bank. However, Shayne Nelson, the group chief executive of Emirates NBD, argues that mortgage financing is a different risk profile that should be excluded from loans extended to contractors and developers.

"The comment I will make on that – that's a comment I have made to the central bank as well – is that I would like to see the housing loans to be treated separately from our properties and [construction sector] commercial loans," Mr Nelson told The National in an interview when asked if the central bank should increase the overall cap from 20 per cent to facilitate further lending. "The reason I say this is that [mortgage financing] is a different risk profile."

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The Central Bank did not respond to an emailed request for comment on whether it is considering whether mortgage loans should be separated from financing to the property and construction sector. ting mortgage loans from property and construction sector bracket.

UAE lenders were forced to make significant provisions for bad housing loans following the 2008 financial crisis and subsequent real estate market crash, which saw the value of properties in some areas of the country more than halving. In response, the banking regulator imposed tighter controls on the exposure of the financial institutions to real estate and related sectors. Both property and construction sectors, have recovered well since the 2008 crisis but have faced some headwinds in the past two years amid slower economic growth and lower oil prices.

The exposure of a bank to housing finance is single-party risk as opposed to the multiple counter party risks involved in financing for property developments and the broader construction sector, and "lumping them together" is not good for the growth, Mr Nelson said.

"In many markets, the central banks are encouraging banks to lend for housing," he said. "I know they [the UAE Central Bank] are examining it. They are certainly examining it as they have been looking at transformation", he added.

Saudi Arabia's central bank yesterday removed administrative fees for mortgage holders if they switch between fixed and floating rate loans. The regulator, through its Twitter account, said that mortgage holders will be able to transfer from one lender to another at no extra cost. The moves are aimed at reducing consumer lending costs and boosting the housing market in the biggest Arab economy.

Craig Plumb, the Middle East and North Africa head of research at consultancy JLL, said a move to reduce restrictions on mortgage financing by the UAE central bank will positively impact the housing loan market.

"My understanding is that banks are keen to lend to mortgages," he said. "The two big things for banks are the cap [on exposure] and their [banks'] inability to repossess if someone defaults on the mortgage. We know there are some improvements in the bankruptcy law but we are not sure if the improvements are good enough to the liking of the banks. Changes in the regulations will certainly help."

Emirates NBD, which is at 18 per cent of its allowed 20 per cent property lending cap, has a big spread of developers and contractors on its books, Mr Nelson noted, adding that as preparation for the Expo 2020 gears up, the bank is looking forward to have more exposure coming through.

The contractors with exposure to the Saudi Arabia, the biggest projects market in the Arabian Gulf, was one of the worries for the banks last year, according to Mr Nelson. That situation, he said, has substantially changed with the government releasing payments to construction firm and the sector is "not under the same pressure as it was probably 12 months ago."